All weather portfolios, designed to perform well whichever way the market moves
When creating portfolios for clients, we seek to strike a balance between investments that should prosper when financial markets are favourable and those that provide shelter during market downturns.
The investments we hold for favourable conditions are often equities, and we think of them as growth assets. Those providing shelter are our protective assets, and they are usually a combination of conventional and index–linked bonds, currencies, commodities and derivatives.
If circumstances change, the same investment opportunity may move from being a growth asset to a protective asset – and vice versa.
To avoid being dependent on the direction of markets, we always hold growth and protective assets alongside each other, varying the allocation to each over time.
In an ideal world, a portfolio would be switched between growth and protection at the top of the market, then reversed again at its trough. In the real world, however, nobody can see into the future and determine exactly when this point will be: market downturns emerge from blue skies, not grey.
Trying to time the market is therefore fraught with danger. Switch too early and you miss out on the boom; hang on too long and you get caught up in the bust.
At Ruffer, we attempt to remove this market timing by always maintaining a blend of offsetting themes within our clients’ portfolios. This is central to our investment approach, helping us to deliver respectable returns during good times and bad.
We see cash as the true benchmark, because it involves no hazarding of capital and there are no fees to be paid.
Focusing on returns relative to the stock market may make life easier for the fund manager, but it bears little relationship to the hopes and fears of real people who want to preserve their assets, savings or pensions come what may.